Asked by Cashmere Wilson on May 09, 2024
Verified
Exchange-rate risk
A) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made.
B) can be hedged by using a forward or futures contract in foreign exchange.
C) cannot be eliminated.
D) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and cannot be eliminated.
E) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange.
Exchange-rate Risk
The risk of losing money due to unfavorable changes in exchange rates when investing in foreign-denominated securities.
Hedged
In investment, using strategies to reduce or eliminate the risk of adverse price movements in an asset.
Futures Contract
A standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, often used for commodities or financial instruments.
- Understand exchange-rate risk and its hedging mechanisms.
Verified Answer
LW
Lawana WoodardMay 12, 2024
Final Answer :
E
Explanation :
Although international investing involves risk resulting from the changing exchange rates between currencies, this risk can be hedged by using a forward or futures contract in foreign exchange.
Learning Objectives
- Understand exchange-rate risk and its hedging mechanisms.